What is Gap Insurance ? – Everything You Need to Know

What is Gap Insurance? – Everything You Need to Know – If you’re driving your own car, there’s nothing more terrifying than thinking about what would happen if you crashed it beyond repair. After all, even the most careful of us could end up in a situation where we crash our car, and not just because of natural occurrences like lightning or floods. It’s probably as a result of your own negligence or recklessness that will lead to you crashing your car.

So whenever this happens and you find that your car cannot be fixed, the first thing that comes to mind is how much do you have invested in it? What will happen if the car is no longer available? Will it have a significant impact on your life?

How will this impact your finances and what are the various ways to reduce risk in such instances? This is when gap insurance comes into play. Knowing everything about, What is Gap Insurance? It will help you make an informed decision. So keep reading What is Gap Insurance? to know more.

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What is Gap Insurance ?

Gap insurance is a type of insurance that covers the difference between the actual cash value of the car and the loan that you have taken to finance the purchase. This is also known as the difference between the ACV and the loan balance. Gap insurance is a type of product that falls under the category of a collateral protection insurance policy. It’s a type of insurance that helps you recover from financial loss when a car is written off.

 The basic idea behind this product is to help you make up for the gap in between the money you owe to the bank and the actual worth of the car.

How Does Gap Insurance Work?

When your car gets damaged beyond repair, the insurance company will pay the car’s actual cash value (ACV). If your car is brand new and you took out a loan to finance its purchase, the insurance company will pay you the car’s Blue Book value (BB). The BB is basically the amount that you would have to pay if you were to buy a new vehicle from the dealer.

There is a significant difference between the two amounts, and that is where gap insurance comes into play. Gap insurance helps you bridge the gap between the ACV and the BB. If your car is beyond repair, the insurance company will pay you the amount of the BB. Once you have received the payment, you need to pay off the loan amount that you took to finance the car.

Read Also-What Does Liability Insurance Cover?

Why Should You Get Gap Insurance?

The main reason why you should get gap insurance is to protect your finances in the event of a car accident that causes your car to be beyond repair. The cost of car repairs can be very high, and even if you have comprehensive car insurance, you may not be able to cover the full amount.

If you have taken a loan to finance the purchase of your car, the gap insurance will help you make up the difference between the loan amount and the actual cash value of the car. This will help you avoid defaulting on your loan.

What to Look for When Buying Gap Insurance?

There are many things that you need to consider when buying gap insurance. These are the age and model of your car, your age, and the loan amount. You also need to decide if you want to go for a fixed or variable period policy.

The age and model of your car – You should get gap insurance only if your car is brand new or has very low mileage. If your car is old and has high mileage, the insurance company will only pay you the ACV. This means that there will be no need for gap insurance in such instances.

Your age – If you are below 40 years of age, the insurance company will provide you with a discount on the amount of premium. If you are above 40 years of age, the insurance company will charge you more. The loan amount – If you have taken a high loan amount to finance your car, you will need to get gap insurance. If you have taken a low loan amount, you may not need gap insurance.

3 Best Ways to Finance Gap Insurance: What is Gap Insurance?

There are various ways to finance gap insurance. You can choose to get it from your car insurer, finance company, or insurer and lender. Here are some of the best ways to finance gap insurance – 

Car Insurance – If you are renewing your car insurance, you can add gap insurance to your policy. This way, you can save money on your car insurance.

Finance Company – You can get gap insurance straight from a finance company. You can also take gap insurance from your car insurance company and get a loan from the same company. Insurer and Lender – You can get gap insurance from your car insurance company and take a loan from the same company.

Conclusion: What is Gap Insurance?

Gap insurance is a type of insurance that covers the difference between the actual cash value of the car and the loan that you have taken to finance the purchase. If your car gets damaged beyond repair, the insurance company will pay the actual cash value of the car.

If your car is brand new and you took a loan to finance its purchase, the insurance company will pay you the car’s Blue Book value. Gap insurance helps you bridge the gap between the ACV and the BB. If your car is beyond repair, the insurance company will pay you the amount of the BB. Once you have received the payment, you need to pay off the loan amount that you took to finance the car. Thanks for reading this article What is Gap Insurance ?

FAQs: What is Gap Insurance?

What is Gap Insurance?

Gap insurance is a type of insurance that covers the difference between the actual cash value of the car and the loan that you have taken to finance the purchase.

What is Gap Insurance Functions?

When your car gets damaged beyond repair, the insurance company will pay the car’s actual cash value (ACV).

 Is gap insurance important or not?

Yes, gap insurance is very important. It is to protect your finances in the event of a car accident that causes your car to be beyond repair.

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